Exercise 1
a) We now know that the error term captures all the factors aecting the
dependent variable not included in the regression equation. We also know that
under the Gauss-Markov assumptions OLS estimaros will be unbiased and consistent. In this case

NOVA School of Business and Economics
Universidade NOVA de Lisboa
Endogeneity and IV
Exercise 1: Consider monthly data on the short-term interest rate (the
three-month Treasury Bill rate) and on the AAA corporate bond yield in
the USA. As Treasury Bill no

Financial Econometrics
1st Semester
Academic Year: 2016/2017
()
1 / 38
Introduction
What is a time series?
Denition:
A time series fxt g is a set of real random variables indexed by t 2 Z ,
where Z is the integer values set.
Most data in Macroeconomics an